Since taking over at the United States Securities and Exchange Commission (SEC), chairman Gary Gensler has repeatedly been referred to as the “bad cop” of the digital asset industry. Gensler has been extremely strict about the crypto market over the last 18 months. handing out numerous fines To ensure compliance with regulations, industry players must be enforced.
Gensler has been quiet about many key issues that digital asset proponents have been discussing for a while, despite his aggressive cryptocurrency regulatory stance. The SEC has not clarified which cryptocurrencies are securities. However, it stated repeatedly that the majority of cryptocurrencies on the market could be classified as securities.
Gensler also pointed out that the existing laws are sufficient to regulate the crypto market. According to Gensler, crypto traders and lending platforms must conform to the SEC’s compliance requirements in order to protect them.
“Nothing about the crypto markets is incompatible with the securities laws. Investors have benefitted from nearly 90 years of well-crafted protections that provide investors the disclosure they need and that guard against misconduct like misappropriation of customer assets, fraud, manipulation, front-running, wash sales, and other conflicts of interest that harm investors and market integrity.”
Gensler has sanctioned a variety of crypto companies and promoters, including BlockFi, for securities violations since April 2021. cough up Register failure can result in substantial penalties of up to $100,000,000
The SEC also filed an Insider-Trading suit against a former Coinbase employee in July. They claimed that seven crypto assets offered by Coinbase were not registered securities. According to public filings, the agency is also reportedly looking into the processes used by Coinbase to choose which cryptocurrencies it offers its clients.
Gensler continues to be targeted by critics
Since becoming the head of the SEC, criticisms surrounding Gensler’s seemingly aggressive approach toward crypto regulation have ramped up quite a lot. Brian Armstrong, the CEO of Coinbase, was one example. revealed His firm was prevented by the SEC from releasing any new features, thereby preventing users from earning an interest on their crypto assets.
In this regard, the SEC issued a “Wells notice” against Coinbase, which in its most basic sense is a document informing the recipient that the agency is planning to bring enforcement actions against them.
Cointelegraph reached out Slava Demchuk to get a better picture of the situation. He is the CEO of AMLBot (a United Kingdom-based Anti-Money Laundering) and AMLSafe, a crypto wallet. In his view, Gensler and the SEC haven’t provided clear guidance for crypto companies on things like registration and compliance and have been unable to make crypto compliance attractive and accessible to market participants. He said:
“It looks like the SEC is focused on all the wrong things, and as a result, the crypto industry is suffering from cases like FTX. And while it is easy to find a balance between regulation and innovation, I concede that it is important to introduce regulations asap; otherwise, investors and users will lose trust in the industry.”
A somewhat similar opinion is shared by Przemysław Kral, CEO of cryptocurrency exchange Zonda Global, who believes that Gensler’s approach to crypto regulation certainly raises many questions, particularly in light of the recent market turmoil. He told Cointelegraph that because Gensler’s actions had already been challenged in the months following up to the FTX collapse, the ongoing criticism against him is being further validated.
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“As a key individual responsible for protecting U.S customers against securities fraud, there’s little doubt that his approach has failed to some degree. Any regulatory framework that fails to protect customers in the first instance should be considered antithetical to promoting growth within an industry,” Kral noted.
Lawmakers aren’t pleased either
With a slew of collapses — FTX, Celsius, Vauld, Voyager and Terra — within the last six-odd months, the overall effectiveness of crypto regulations in the United States has been called into question by a number of prominent lawmakers, including U.S. Representative Tom Emmer, who recently expressed his concern regarding Gensler’s crypto oversight strategy.
Since the turn of the year, Emmer has been quite vocal about the SEC’s “indiscriminate and inconsistent approach” toward the digital asset sector, with the Congressman noting that earlier in March, he had been approached by representatives of various crypto and blockchain firms who told him that Gensler’s elaborate reporting requests were not only extremely burdensome and unnecessary but are also having a direct effect on the innovation emanating from this rapidly evolving sector.
It’s also worth noting Emmer recently requested that the SEC comply with the Paperwork Reduction Act of 1981, which was a bill meant to reduce federal government paperwork burden on citizens and private companies. “Congress shouldn’t have to learn the details about the SEC’s oversight agenda through planted stories in progressive publications,” he said.
Lastly, earlier in September, Gensler introduced a new rule requiring all crypto intermediaries — including exchanges, broker-dealers, clearing agents, and custodians — to be registered with the SEC. This decision was met by much opposition, including one from Pat Toomey (a prominent Republican senator).
He believes that the SEC has failed provide any regulatory clarity to the crypto industry, while also accusing the regulatory agency of “being asleep at the wheel,” especially as prominent projects like Celsius Network and Voyager Digital have continued to collapse like dominos all through the summer, leaving hundreds of thousands of clients without access to their hard-earned money.
Is the chairman’s future in jeopardy?
In March 2008, Sam Bankman Fried, ex-CEO of FTX, joined Gary Gensler in a video call to discuss the defunct exchange receiving the regulatory green light in the United States. Gary Gensler was not subject to any penalties (primarily for violations of securities rules).
And while the deal did not come to fruition, FTX’s fall from grace has called into question Gensler’s future as the SEC’s head and his general effectiveness, especially since Bankman-Fried was able to gain access to the elites of Washington while running an off-shore firm promoting risky trading schemes and dipping into its customers’ accounts to fund other investments.
Emmer suggests that Gensler may have been in cahoots and with Bankman-Fried, as well as the rest of his team. Emmer tweeted on November 11:
Interesting. @GaryGensler Reports to my office claim that he was helping SBF/FTX to find legal loopholes to get a regulatory monopoly. This is being investigated. https://t.co/SznowgcP6V
— Tom Emmer (@RepTomEmmer) November 10, 2022
In essence, FTX’s collapse has set in motion a completely new level of inquiry into Gensler’s crypto outlook. To this point, details of Gensler’s public meeting schedule containing Multiple sessions with Bankman Fried recently made their way online — some dating to October, just a month before FTXs downfall — resulting in many crypto enthusiasts claiming that Gensler might have been cozying up to a potential criminal responsible for defrauding investors of billions of dollars.
Some people believe that if the SEC had made a deal to FTX, it would have given the latter a regulatory monopoly on the digital asset market, and Bankman-Fried the ability to control the crypto exchange landscape.
What’s next for the SEC and crypto?
Gensler is pursuing a strict regulatory approach to crypto markets, which could mean that the industry will be very hard hit in the months ahead. First, it appears that the two-year-long fight between SEC (formerly Ripple) seems to be at an end. The judge is expected to make a decision soon.
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The case could have major ramifications for the market at large since Ripple’s native crypto offering, XRP (XRP), is currently in the top 10 digital assets by total capitalization. The dispute between the SEC and Ripple started back in December 2020, when the regulator alleged in court that Ripple’s executive brass had raised a whopping $1.3 billion by offering XRP as unregistered securities.
It will be fascinating to see how Gensler & the SEC navigate the fast-evolving world of decentralized tech as we move into the future. This is especially true considering the rapid growth in cryptocurrency investments over the past couple years.